David Simon surged into the American mainstream with a bleak vision of the devastation wrought by drugs on his home town of Baltimore – The Wire, hailed by many as the greatest television drama of all time. But what keeps him there is his apocalyptic and unrelenting heresy over the failed "war on drugs", the multibillion-dollar worldwide crusade launched by President Richard Nixon in 1971.

When Simon brought that heresy to London last week – to take part in a debate hosted by the Observer – he was inevitably asked about what reformers celebrate as recent "successes" – votes in Colorado and Washington to legalise marijuana.

"I'm against it," Simon told his stunned audience at the Royal Institution on Thursday night. "The last thing I want to do is rationalise the easiest, the most benign end of this. The whole concept needs to be changed, the debate reframed.

"I want the thing to fall as one complete edifice. If they manage to let a few white middle-class people off the hook, that's very dangerous. If they can find a way for white kids in middle-class suburbia to get high without them going to jail," he continued, "and getting them to think that what they do is a million miles away from black kids taking crack, that is what politicians would do."

If marijuana were exempted from the war on drugs, he insisted, "it'd be another 10 or 40 years of assigning people of colour to this dystopia."

Simon joined two film directors for a discussion onstage: Eugene Jarecki, in whose movie The House I Live In – on the toll of America's war on drugs – he features prominently, and Rachel Seifert, whose Cocaine Unwrapped charts the drug's progress from blighted "producer" countries to the addicts in Europe and the US.

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The occasion was staged by the Observer and chaired by its editor, John Mulholland, as part of its campaign to address the global drugs crisis.

Simon took no prisoners. In his vision, the war on – and the curse of – drugs are inseparable from what he called, in his book, The Death of Working Class America, the de-industrialisation and ravaging of cities that were once the engine-rooms and, in Baltimore's case, the seaboard of an industrial superpower.

The war is about the disposal of what Simon called, in his most unforgiving but cogent term, "excess Americans": once a labour force, but no longer of use to capitalism. He went so far as to call the war on drugs "a holocaust in slow motion".

Simon said he "begins with the assumption that drugs are bad", but also that the war on drugs has "always proceeded along racial lines", since the banning of opium.

It is waged "not against dangerous substances but against the poor, the excess Americans," he said, and with striking and subversive originality, posited the crisis in stark economic terms: "We do not need 10-12% of our population; they've been abandoned. They don't have barbed wire around them, but they might as well."

As a result, "drugs are the only industry left in places such as Baltimore and east St Louis" – an industry that employs "children, old people, people who've been shooting drugs for 20 years, it doesn't matter. It's the only factory that's still open. The doors are open."

While his co-panellists sipped their water, Simon poured himself another glass of red wine as he continued. A bull of a man, a presence in any room – even one as large as the packed theatre in the colonnaded heart of Britain's scientific establishment.

"Capitalism," Simon said, "has tried to jail its way out of the problem" with the result that "the prison industry has been given over to capitalism. If we need to get rid of these people, we might as well make some money out of getting rid of them."

Jarecki, in a scathing portrayal of the American prison system in both his film and at Thursday's event, cited some statistics: "We have ravaged our poor communities," he said, some of which, African-American, counted "4,000 per 100,000 in jail, as compared with an average dose of around 300". Meanwhile, Simon said the police in some cities had "become an army of occupation that sends brothers and fathers to jail".

He described a logic to policing in Baltimore whereby "street-rips" in drug-infested areas make for easy arrests to achieve "cost-efficient" policing, while criminal activity other than drugs was ignored because prosecutions were laborious.

Simon said he had seen a decrease in arrests for non-drug offences from 70-90% to 20-40%, while drug-related arrests increased on some beats from 5,000 to 30,000 because, as Jarecki put it, "it's like shooting fish in a barrel".

"So the drug war," concluded Simon, "makes the city unsafe." But has it worked? "The drugs in my city are more powerful, cheaper and more available than ever before," replied Simon.

Simon said he had "no faith in our political leadership to ever address the problem. There is no incentive to walk away from law and order as a political currency." He said change would come, if it does, from jurors simply "refusing to send husbands, sons and fathers from their communities to jail … That is how prohibition [of alcohol] ended. They couldn't find 12 Americans who would send a 13th to jail for selling bathtub gin."

Simon regarded "legalisation" of drugs as "a word invented by advocates of the drug war to make the other side look goofy, saying 'everything should be legalised'. The issue is: how do we get out of here? And I say: decriminalisation. As with other controlled substances – taxed and regulated." He later said he did not think change would come of any moral decision, but because "someone just figures out: this is costing too much money".

From the audience, the Colombian ambassador to London, Mauricio Rodríguez, drew attention to his government's leadership of initiatives from Latin America to "completely redraw" a global strategy on drugs, with co-responsibility assumed by consuming countries, focusing on social and economic issues, and money laundering by banks. "Basta!" he said, "the Latin American countries have had enough." Such thinking had driven a recent report, which Rodríguez brandished, by the Organisation of American States, of which, he pointed out, the US is a member.

Simon replied that America had fought "proxy wars" across the world for decades, and the war on drugs in Latin America was among them. On the carnage in neighbouring Mexico, he said: "If 40,000 Mexicans are dead, we don't give a damn as long as it stays that side of the border – turn northern Mexico into an abattoir, so long as it doesn't get to Tucson. If we can fight to the last Mexican, for a suburban American to send their kid safely to junior high school, we will."